The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
News Item 1: Zen blockchain hopes to strengthen, broaden Bitcoin
Decrypted: Recently, the Zen Protocol came out out of stealth mode hoping to create an alternative to Ethereum and solve the “running out of gas” problem that can happen with Ethereum based smart contracts.
The Zen Protocol is a solution for decentralized, automatic contracts that runs in parallel to Bitcoin, just like a sidechain. The Zen Protocol eliminates some of the problems associated with Ethereum smart contracts. Zen allows its miners get to know the amount of computation a contract requires, before actually executing it. This makes it possible for contracts to execute extremely fast.
Our take: Smart contracts are one of the key innovations of Ethereum. The basic idea is programmable, self-executing contracts that are recorded and executed on the blockchain. Smart contracts run on the Ethereum Virtual Machine (EVM), that uses resources for computation and data storage.
All transactions, from simple transfers to ICO smart contracts, require resources to execute. Each of these resources has an associated cost in “gas”. Gas is the metering unit to use EVM and the way miners are incentivized to process the transactions.
When a transaction is sent to EVM, it will start to execute, but if it does not have enough gas, it will eventually stop. When this happens, the amount of Ethereum spent on gas is not returned, but since the transaction did not actually complete on the blockchain, the main funds remain in the wallet.
Zen is a decentralized financial platform, built from scratch with the goal of providing people with a secure, scalable and useful infrastructure for creating their own financial instruments, and trading them directly without intermediaries.
Zen enables everyone anytime anywhere in the world to create and trade financial products. The platform creates an open marketplace where users can operate various types of financial instruments, including options, futures, digital currencies, ETFs. This makes this new chain a more fully fledged financial system compared the others.
Zen can be utilized with real world assets, and not just blockchain related assets, as in the case of Ethereum. Because its a Bitcoin side chain, it’s part of the Bitcoin blockchain and all Zen nodes are also Bitcoin nodes. Its close connection with Bitcoin makes it possible to sell assets for BTC or to create Bitcoin-backed assets.
The Zen blockchain is secured by multiple proof-of-work algorithms, with token-holder voting on the balance between them. Multi-hash mining creates robust incentives for miners to deliver efficient, reliable security.
Zen smart contracts are written and secured by a subset of the F* functional programming language, allowing users to prove:
- The amount of resources a contract will consume and provide the necessary fees for running the contract to miners, removing the need for a “gas” based system.
- Their contracts meet a given specification, meaning they can prove the contract will definitely do (or not do) something given a specific set of parameters.
The Zen Protocol eliminates the problems with Ethereum smart contracts, when they run out of gas. The protocol utilizes contracts that never exhaust network resources and are always correct. In advance, miners know exactly how much computing power will be required to verify a contract. This allows for contracts to execute and transact faster.
Decrypted: Rawdon Adams, Bitt’s new CEO, takes the helm of the Barbados-based fintech company, a few months after the company revealed a plan to develop a pan-Caribbean settlement network, built on blockchain. The plan is to create a way to better connect the region and create a new type of digital currency: a regional cross-border blockchain currency.
While many solutions are being talked about, the problem of de-banking in the Caribbean is enormous. Its clear to everyone that something needs to happen. Leveraging Blockchain technology can lead to economic transformation in the region. The appointment of Adams adds clout to the startup’s regional plans. Rawdon is the son of Tom Adams, who served as the prime minister of Barbados between 1976 and 1985.
Our take: Smaller, poorer countries are being abandoned by big banks in an exodus commonly referred to as “de-risking” or “de-banking.” In the Caribbean, where many small countries with poorer populations reside close to each other, the problem is getting so bad that local businesses regularly have a hard time receiving remittances and paying suppliers outside of their own country, even when their trading partner is just the next island over.
When traveling between islands in the Caribbean, dealing with currencies has always been complicated. With 7,000 islands comprising 12 dependent territories and 13 sovereign island nations, trading and travel is complex, especially in terms of having the right money or making conversions when paying by card.
The growing trend in the Caribbean was the topic of a 2016 report by the IMF. No one knows exactly how much of the population is “unbanked,” or financially underserved, in Latin America and the Caribbean. However, estimates put the number as high as 70%, or more than 400 million people.
The UN Economic Commission for Latin America and the Caribbean, when examining the use of digital currency technology in the Caribbean, released a report with the goal of drawing attention to the opportunities and liabilities related to the technology.
The UN’s report noted that in March 2014, the Central Bank in Trinidad and Tobago issued public awareness information about digital currency, warning that “potential users of the product must be aware of the risks involved in investing in virtual currencies as regulators seek to establish appropriate frameworks to ensure the continued safe operation of the payments system and the smooth conduct of monetary policy.”
The report also stated that Trinidad and Tobago have the potential to become a hub of digital currency activity given its relatively low cost of energy, making it an attractive location for digital currency mining. Moreover, the research into Koblitz Group revealed two subsidiaries: Bitt, a digital currency exchange and ASICBLOCK, a hosted digital currency mining service.
In early 2014, the Koblitz Group was working on an initiative to establish a digital currency exchange to serve the Caribbean, with a launch in Barbados and then an expansion into Trinidad and Tobago.
Bitt was founded in 2013 in Barbados. Its a digital asset exchange that owns and operates a trading platform for Bitcoin and other fiat currencies. The company focuses on providing access to cryptocurrencies in emerging markets. Bitt has developed a high frequency trading platform, boasting military grade security, that includes a digital asset exchange, a mobile money wallet, a remittance platform, and merchant payment processing tools.
In 2016, Bitt launched the Barbadian Digital Dollar, the Caribbean’s first blockchain-based digital money. The Barbadian Digital Dollar is equivalent to one dollar issued by the Central Bank of Barbados. To create the digital dollar, Bitt took advantage of the Colored Coins protocol, that allows the creation of new assets on top of the Bitcoin blockchain.
Other central banks in the region are joining the project and Bitt will soon also handle Aruban florins and Bahamian dollars. The Eastern Caribbean Central Bank (ECCB) is engaged with Bitt for a pilot in the Eastern Caribbean Currency Union.
Also, earlier this year, Bitt parnered with PwC to offer central banks and other institutions, access to PwC’s deep global expertise in blockchain research and knowledge, marketplace strategy, operational readiness and technology services.
Looking at the bigger picture, it seems like we have a new type of digital currency in the making, that will potentially span across several countries. With the appointment of Rawdon Adams, its likely that support from the Barbados government and other governments in the Caribbean region, could turn Bitt’s project into an initiative that potentially could impact the entire region.
News Item 3: Fidelity Investments Is Mining for Cryptocurrency
Decrypted: Fidelity Investments is one of the largest investment firms, managing $2.3 trillion in assets. In May, during the 2017 Consensus conference, Abigail Johnson, Fidelity’s CEO, said that the company was in the business of mining Bitcoin.
The firm has been experimenting internally with Bitcoin and is now bringing some of those features to its broad customer base. Now, through the Fidelity website, cryptocurrency balances are visible to customers that hold an account with Coinbase.
Our take: Fidelity is one of the few US. financial firms that have taken a proactive approach to cryptocurrencies, speaking publicly about its cryptocurrency operations, while most of the big banks have been hesitant to adopt Bitcoin and are only now starting to explore blockchain technologies.
Fidelity has a small operations team in charge of mining Bitcoin, trying new wallets, and even experimenting on innovations to further augment cryptocurrency.
One of Fidelity’s projects is mining Bitcoin and Ethereum, which started for educational purposes, but now turns a nifty profit. Abigail Johnson said “We set up a small Bitcoin and Ethereum mining operation, that miraculously now is actually making a lot of money”.
Fidelity is reported to have purchased its mining equipment from the company 21 Inc. It is unclear how many units they purchased or what type of mining power Fidelity has, but we can only assume their mining operation is still limited in power, considering it was only set up for educational purposes.
Additionally, Fidelity has updated its website to display cryptocurrency balances for a customer’s Coinbase account. Earlier this year, Fidelity began testing the view balance feature with employees who own digital assets on Coinbase. During testing, Fidelity found strong internal support for the partnership and ability to view digital asset holdings within their portfolio.
Fidelity Labs, the company’s research group, has made venture investments in a handful of Bitcoin businesses as well as partnering with university efforts, including the MIT Digital Currency Initiative.
Fidelity employees can pay for their lunch or coffee using Bitcoin in the cafeteria at its Boston headquarters. The firm’s charity arm also began accepting Bitcoin donations in 2015 and the company received $7 million worth of Bitcoin donations last year.
In 2017, the market cap for cryptocurrencies has grown significantly, especially Bitcoin and Ethereum. Despite the acceptance of the underlying blockchain technology, regulators and financial firms in the US have diverged from implementing cryptocurrencies in their daily business operations. But maybe the winds are changing and now we’ll start seeing more big financial services firms becoming more proactive with cryptocurrencies, contrary to some of the statements we heard in the past weeks.
Even though J.P. Morgan chief executive, Jamie Dimon, called Bitcoin a fraud, the bank’s traders were buying shares of an exchange traded fund that tracks cryptocurrencies. In a recent article on CNBC, James Gorman, CEO of Morgan Stanley, took a different stance saying that Bitcoin and other cryptocurrencies were certainly “more than just a fad.”.
Along with JPMorgan, more than a dozen banks, including Morgan Stanley, Goldman Sachs Group Inc and Credit Suisse Group AG, have acted as brokers for buying and selling Bitcoin XBT on Nasdaq’s Stockholm-based exchange, according to Swedish online bank Nordnet AB.
It is good to see Fidelity Investments showing confidence in cryptocurrencies. This very public Bitcoin recognition makes Fidelity just one of a handful of big investment companies that have decided to integrate cryptocurrencies and putting it in direct opposition to many others including the likes of J.P. Morgan, that continue to ignore what they can’t control.
Some governments love blockchain technology, but hate Bitcoin. Some governments are in panic, because they understand they can’t stop Bitcoin from becoming an alternative to their monopoly on money. Deep down, most governments understand the underlying value of blockchain, which is primary reason they are considering and are experimenting with their own versions of fiat digital currencies.
Bitcoin is largely an American invention. While no one knows who Satoshi Nakamoto really is, it is believed that he primarily spoke and worked on Bitcoin in English and eight years ago he refined his protocol with the late Hal Finney.
Yet, China and Russia have both shown interest in pursuing their own national cryptocurrencies, as part of their strategies to disrupt US. economic dominance. The Chinese government is speeding up investment in cryptocurrency technology to replace paper money with digital currency. The Ministry of Industry and Information Technology (MIIT) recently approved nine products that meet the country’s “trusted blockchain standards”, including Tencent Blockchain developed by online payment system Tenpay, and a platform from Chinese telecom conglomerate ZTE.
The US dollar’s position as the world’s dominant reserve currency gives the US enormous leverage over the world’s economy. The high demand for dollars in many different countries, allows the US. to constantly print more, making buying imports and borrowing money cheaper for the United States.
But the US. is holding on too tight. This is the primary reason the US. has not been pro-cryptocurrency. And this is potentially its down fall.
In such a globally connected economy, the impact of transitioning to blockchain will be profound and will likely turn any nation and industry on its head. Amazon dominates as a marketplace. Facebook dominates as a social network. Google dominates as a search engine. Airbnb dominates renting rooms. Blockchain, the distributed database that powers Bitcoin, could disrupt everything.
In an article on Bloomberg that Vlad Martynov, an adviser for the Ethereum Foundation said:
“Blockchain may have the same effect on businesses that the emergence on the internet once had — it would change business models, and eliminate intermediaries such as escrow agents and clerks. If Russia implements it first, it will gain similar advantages to those the Western countries did at the start of the internet age.”
The winners of the blockchain era, will be the countries and businesses that embrace it and Michael J. Casey sums it up perfectly:
“Given the current policy priorities of the Trump administration, the U.S. won’t likely be the winner in this. But neither will China if it continues on its present course. The age of cryptocurrency will deliver the spoils to countries, businesses and individuals that operate within a system of open access, property rights and free trade – the principles upon which U.S. hegemony was originally built”.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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